As the UPA government prepares to win over a reluctant opposition over the issue of FDI in retail and insurance, the growing all round negativity in the macro economy data has already dampened the positive sentiment sought to be created by slew of reforms measures announced post P Chidambaram’s re-induction in the finance ministry.
The UPA government, which earlier faced a turbulent monsoon session, gets to face the winter session in the backdrop of all round negativity in macro economic data released around Diwali. The winter session begins November 22. Barring the rally seen in the stock market (Sensex) which closed at the highest level (19058) of 2012 on October 4 post Chidambaram policy boost, the economic activity levels remain weak and this can easily be judged by rising fiscal deficit worries made worse by much lower than expected telecom spectrum auction receipts earlier this month.
India’s industrial production (IIP) figure for the month of September registered a 0.4 percent de-growth as against a growth of 2.3 percent posted in August. This figure came in below market expectations of nearly 2.8 percent growth. Capital goods as usual remain a huge worry. Interestingly, this is the seventh consecutive month that capital goods output has contracted on a year-on-year basis. The negative growth of 12.2 percent in capital goods shows that investment cycle is still in trough phase (slow down). Furthermore, what is more worrying this time is the fall in manufacturing sector (with weight of 75.5 percent in IIP) which contracted by 1.5 percent.
Another macro data which indicates the sluggish growth rate of economy is the CPI inflation rate. This inflation rate at the retail level edged up closer to double-digit territory at 9.75 percent in October as against 9.73 percent in the previous month. The higher figure was driven by rising prices of food items such as sugar, pulses etc.
Similarly, trade deficit for October has widened to an all-time high of $20.96 billion from a deficit of $18.1 billion in September; exports during the month declined by 1.6 percent when compared to the corresponding period last year. India’s exports fell for the sixth consecutive months due to the turmoil in global markets. However, imports posted an increase of 7.4 percent on yearly basis. This is the strongest increase in the seven months.
However, lower WPI inflation rate for October may have provided a little relief to the government. It declined sharply to 7.45 percent as against 7.81 percent in the previous month. However, two negatives can clearly be seen in the inflation print. First one being that the core inflation is still above RBI’s comfort zone and the other being the steep upward revision of August inflation rate to 8 percent. Even, RBI Governor D Subbarao recently accepted the fact that the headline inflation rate of 7.5 percent is still quite high.
It’s not that the latest macro figures are weak but the year 2012 in general has been a tough one for India’s macro economy, characterized by sticky inflation, slowing growth, and high fiscal and current account deficits. However, this winter session of Parliament would be keenly watched as a number of important reform bills are likely to be introduced. Key Bills that could be introduced include the Land Acquisition Bill, the Banking Laws (Amendment) Bill, the Pension and Insurance Reform Bills, the Mines and Minerals Bill, and the new Companies Act. If these are implemented, this would provide much needed impetus to the economy.